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tv   After Words with Joseph Stiglitz  CSPAN  August 27, 2015 9:57pm-10:55pm EDT

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grant to the states as redid it 1996. the pensions need to move state and local and federal from defined benefit plans to defined contribution like the i.r.a. and 401k that the government cannot lose for you or forgets to raise the taxes. utah has done is completely all new hires here is your pay here is 10 percent into the 401k. when you want to leave you take that with you move to another state or another job spirit that is what everyone has in the private sector. now they're at defined contribution and state-by-state you see that move that the state and
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local level and at the national level you need to do that as well. but to have something sustainable all welfare programs block grant to the state medicaid medicare everybody has the basic benefit and you compete for that additional ad on that together for don't do the right and plan with the depth of understanding with a sitting congressman and of the right and plan. >> putting them together
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improving the economist i would like to meet with you i am with him. >> for 20 minutes or half an hour. with every eight republican member of the house i met with them to walk through the space budget so everyone has day tutorial. >> that is remarkable given medicare reform. >> they can explain it to two young people and middle income and retired people this is not a threat but a help to your future that you have that base of understanding to make the
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difference in the world there would lois be a grand bargain that is unchanged and then we become friends now we're a 20 to go up to 42 state taxes up to 30 then bring 40 down to 38. >> that is losing i call it a compromise. bigger than where it is. >> the fact republicbank - - republicans have tax increases they find that an interesting you never see "the washington post" right about those reforms into promise those news reforms but all's they have done is added to the entitlements
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and now the most recent fight for stock obama with the reforms on medicare. >> i think we're at a time even though i have another hour of questions. >> is a fine book i wrote from 5:00 in the morning trade:00 in the morning it is like living with someone who lives in how why we were on different time zones we were awake some of the time. [laughter] >> host: i enjoyed reading it very insightful observations i never thought of. >> guest: thanks for having me
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>> host: and i am here with nobel prize-winning economist, ed joseph stiglitz i am very excited to have this conversation. >> guest: nice to be here. >> host: i am president of an organization called demos real have an equal say in equal chance in our economy think of the work they you have done the clarion call there has been a sharpening
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the past few years of your commentary for what is feeding an economy what it gives you the rightta to about campaign finance? >> we could not not talk about that. with the issue of equality. and quintessentially industrial town that began in 1906 the largest deal mill in the country the chairman of the board of u.s. steel. but when i was growing up
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and i went to college but that feeling for inequality in des talking a couple of essays. in that was 51 years ago. and we made some progress. we have opened up doors and we have eliminated gender
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even though we all talk about it. but the quality itself does ben a lot worse when i was growing up to the golden age of capitalism then all of a sudden things got worse and worse we had a sense of hope >> i grew up in chicago lot of my family to open after african americans in limited ways i was born 1980 the
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beginning of the of very different era. to the unraveling of the economic contract. to think of the political changes from the era of shared prosperity and how much there is a political wind behind a new selfishness with the backlash to african-americans i often think about that shared a contract between labor and business sent government. it has to be three white men.
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with henry ford and eisenhower. and in some ways business and government got up to leave the table. >> guest: you ask what right do i have to comment? what you said is related to that i tried to spend 50 years to understand economic models the answer was you couldn't. you couldn't understand why any standard competitive equilibrium model while people got such a different pay. they cannot explain power relationships not only discrimination but slavery
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the was the most obvious example but then i realized those were the easy things to see that the night in -- beneath the surface that was shaping the economy. but they were projecting all of us one way or another. this is for collective action. if you have more monopoly power that is the power to raise prices. you lower wages just as much by weakening the union workers by strengthening corporations.
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and where politics starts to enter that is the rules in aggravations even like the federal reserve to all the politicians interfere with that. but the fact is the federal reserve thank is managed by a group of people that are appointed but appointed by whom? is something is called the open market committee for interest rates to go up or down they're not elected in
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the old ben and transparent their representative of the financial community so you get policies focused on equation but not employment. to say on employment and growth and now even financial stability the you have people like alan greenspan to says they know much more what to do in self regulation for predatory lending market manipulation that they transfer money to the people at the very top.
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trip by a trip lot by lot so with these banking practices the can see at the same time to make the poor people for. to make the rich people richer. in a way to undermine our economy for it is pretty obvious and one is to make it more stable. but also undermines the economy in another way.
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that have to spend everything just to get by with that indebtedness. so they would demand growth. historically 70% of gdp if you take away many from those whose spend it he will not grow the economy. >> very much before the crash people using their home as the atm and that has went away to borrow to make ends meet and it was an expensive form of debt. which the credit card act of 2009 saving families
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$50 billion. it's not like they couldn't provide the services for a 20% rate payment mechanism which would have a lower transaction costs. cut percentage of gdp went from a little over 2% there are taking away 40% of corporate profits that could have went into investment. >> that is why you explain so well with the of the evangelization of the economy the idea that it isn't supposed to be the end to with self but up pipeline
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for capital to be used in the economy. the financial sector has been siphoning that offer is also the real economy just gets a trickle. so the question of what the financial sector should look like to offer ideas for reforms beyond dodd/frank. >> but it was mostly about whole debate to do that kind of damage? we didn't know we should have begun for what it was supposed to go fully if you stop it from other things
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but that is the hope of where is part of that coalition at that time working in washington d.c. running point on six titles of dodd/frank but that drafter that we got from the secretary of treasury was first and foremost, preserving the system and reformers like us did not want to. [laughter] we need to stop from what happening again because that is the unfinished business. >> exactly. that is important for business. small or medium-sized
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enterprises with capital to start with the flow of money years after the prices down more than 20%. then take the homeowners. to with capital and manage risk to come up with financial products. wages go up and down with lots of risk what they do? we're not focused on managing risk george has been raging fishing for fools to find food they
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could prey of the most to extract the most money out of. >> then shift to investors. >> and eventually a other taxpayers. >>. >> even in the united states here in new york state said there was the product that worked with low interest rates with a teaser rates no balloon payments. they manage their way through the crisis but the
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public wasn't trying to pray another's that worked. other countries have mortgages but the maturity various. you don't have to wake up every morning to wonder if it is in your budget bill for 25 years to 28 years you can manage that but that is a simple example what are the kinds of constraints to individuals? what are the margins they can adjust? it isn't that hard in a lot of things we could have done that we didn't. to one of the important aspects is the transaction cost.
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but the financial sector wants to maximize the transaction cost that is there in, . [laughter] >> guest: what is the cost to us is their profit. >> they want to maximize we want to minimize i would get how the system works to say that is not how i will functioning market works. one of the things i talk about "the great divide" is the version you have to make markets work like markets. >> host: talk about that. when we were working on dodd/frank before that and crying about the fact there was of bubble and predatory lending the economists were not necessarily all on the underside attitude to the wonderful job to create the
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food did it will kill the american economy you they blame but even on your own field so can you talk about what they did to help pave the way and is there a way for economics to lead us out? >> when we think about who is to blame the bankers and financial sector who did what they were supposed to do actually worse than that. they were engaged in behavior, if not illegal should have been. i also blame the government because the financial sector has often behaved that way and we know about that that is why we passed that legislation like glass-steagall after the
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great depression and they were not doing their jobs for girl that is how 32 our conversations we need regulation for officials. to persuade politics year rubio glass-steagall one company got a hundred $80 billion in a single act of corporate welfare over years but behind those stakes to gave assurances, i
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don't worry the markets are you efficient and stable that they provided the intellectual underpinning to believe any efficient markets with the unregulated markets and the scope for all this bad behavior and they opened the door to say don't worry people will behave well. one of the interesting things was alan greenspan after the crisis said there was a flop. oh little flaw that cost $5 billion. [laughter]
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millions of americans losing their homes and their jobs but there was a flaw with that illustrates the schizophrenia. he took from the economist lexicon that the market's worry efficient but there was research going on that said that is untrue. this is the period of the economic research the work that we did with information imperfections and behavioral economics people are not as rational but that model you are using is totally wrong. totally wrong. their predictions for that model will be wrong.
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i'm modestly say we were right. [laughter] and with the selective use of economic research their virtues schools of thought -- with two schools of thought they don't work perfectly the financial burkett shows to pay attention to the one that was convenient the politicians chose for the ones that were compensated. that brings us back to why it is so important because it was setting the rules to allow them to do the stains with the enormous effect is
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the biggest economic event of 75 years. and you can separate that that allows this to occur and that intellectual doctor in. >> now we are out of the crash moment where the question is not financial stability but just to be shed and growth and there is also a and economic debate whether or not in a quality is acceptable under the rubric of what is supposed to matter openly witches gdp growth and finally i think of it of a shift to understand the relationship that we cannot have these
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levels of inequality of the growth that we want to. can you talk about that evolution? now is is the inhibitor not just the natural outcome of positive growth? >> this is one of the major shifts of our understanding of economics. a used to be thought there was a trade-off you could only have more equality if we gave up on growth with is an important to mention. but now we see that as a compliment especially the extremes of the united states. this is not a discussion about equality and nobody talks about that but whether
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bringing back the inequality from extraordinarily high levels to make our economy stronger. >> what does that look like? tax increase is that the top floor are you more concerned about mobility or people at the middle? how do you balance? >> what i emphasize it isn't just a redistribution but that some people call pre-distribution before taxes so if you think about the
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in thinking about the human
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resource question, you have a great essay in here, the great divide. it's one of the issues that has changed in my lifetime. we recently posted a study that looked at the cost sense the great recession. six six years after the great recession from that state education funding is below the prerecession level. this where the government says we believe in you, the next generation and were going to invest in you. we talk a lot about state-level things that are happening. as it hit over trillion dollars of student death, they say say it's not about public funding it's about big-name buildings. there's been been this construction boom on campus, this administrative blow. we tried to get into this and we
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found that state higher education cuts were responsible for 79% of the hike. so when you think about this question of what we owed to the next generation, what the role of government is, and how that inequality of opportunity is being passed on to the next generation, to what degree do you think funding higher education making of the public good is important? guest: it's absolutely essential. put it into the context of what i thought about growing inequality. the fact that in the middle what you saw is income stagnating for families and tuition going up, because states cut back by 25%
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their support of public education. they had. they had no choice but to raise tuition. the only thing that can help that circle is a debt. and now were seen that is having macroeconomic effects and huge effects on these individuals. so these kids can start to make a family, make purchases, they don't want to buy a house, they can't buy house. all of these things that are very difficult for the individual but also difficult for our economy. it also means we are no longer country of opportunity because what it means, i tell my students the most important choice and decision you have in your entire life is choosing the).
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and if you make the mistake of choosing a parent in the bottom, you're going to have a really hard time. the kids at the top, of course their parents are going to send them to college. host: it's interesting because it never used to be that way. you used to not need a college degree didn't order to get ahead. but in the 1990s and this and this is bipartisan consensus and we set as a country, it's okay to ship over those working-class industrial jobs because we are going to be the country of innovation. we are are going to be the smart guys. at exactly that same time we will take all the educated jobs, we cut back on funding higher education for exactly the families that would have been able to get a good unionize working-class job now are left with having to go into debt and be frozen out of higher
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education. guest: you're exactly right. even if we hadn't done that, the changes in technology would have pushed us to require more education. it's actually worse than you described it because today a lot of the good jobs, what used to be the college jobs now you need a masters degree. that means that not the average of 25 to 30,000 dollar debt but 100,000 or $200,000 or $200,000 debt that really makes life very difficult. some of the most stories outlined in my book kids say i'm in a pickle. i have this huge debt from college, i know i need to get an advanced degree or i need to
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take an unpaid intern, i don't have the connections and i can't live and take the it on paid intern and i can't borrow any more to get that masters. yet they are caught to and and they know that if they don't do that, or even worse case they don't get to college, their incomes have plummeted down. they're caught between a rock and a hard place. spee1 i think it's important press to talk for us to talk about the issue to recognize that this is not just the foot of the ivy league question, two thirds of young people who graduate go go to college. the problem the number one reason students have been dropping on is that financial burden. the worst thing that is happening so often that people are going to college and working full time mother trying to get that degree, whatever reason it's financial pressure is getting too much and they don't have a degree but they still have this debt. that is where we really have walked away from a commitment of opportunity. guest: absolutely and it's even worse for the for-profit. let's put this in a historical
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context. after world war ii we were a much poorer country. we had the gdp ratio of 130%, our gdp over the last seven years has increased enormously. yet, we we said at the end of world war ii that we could afford a free for your college education, the best anyone could get into, if you got into harbor we pay it. everybody who fought in the war and a lot of women, here we were a poor country and we said we could afford it. like i said we could not not afford it because that was the basis of and it was a period
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where we grew together. president obama has proposed a two-year community college he and you hear from some that you can't afford it. to me that's nonsense. nonsense. one of the main messages is it's a matter of choice. we chose to do it then, we made the right choice and we benefited from that and now we are making the wrong choices. host: let's talk about the idea. one of the massive consequences of the great recession was a counter intuitive push for prosperity, here in the u.s., at the federal, state and local level and hope all across the globe. can you talk about why it was,
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at a moment when there is a contraction of the man there was an elite consensus that we should pull back more? spee2 it was a conservative it consensus that had for the state and local they didn't have much choice. most of the states have a balanced budget so when their revenues go down they have to cut back research expenditures. that's why i had proposed we went into the crisis in 2008 i said we ought to have an automatic stabilizer grant to the state to make up for the gap. they tax the same rate but regulars are going to go down and if you don't do something about it they're going to be
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cutting back on education just when we ought to be investing more. there cut back on infrastructure when we need to invest more. that in my mind was an obvious idea and an automatic stabilizer because it's always in the macro economics hard to predict precisely. if the economy turned out stronger then we went need to spend it. if it turned out weaker you put in even more money so it was in the right framework but couldn't get the obama administration or congress to adopt it. what's interesting is, it's an idea that was tried in the great depression, and a sense that sense that when the stock market crashed in 1929 hoover and the secretary of treasury said,/,/,/
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and it worked in converting into the great depression. it converted to it recession into the depression. meanwhile i had thought with all of these experiments we would have said austerity is not the way to go, a lot of bad economic theory says austerity is not the way to go. from the point of view of the economist, we have more data and now we save those countries that had more austerity did much worse. why did the u.s. to better, we had less austerity. the united states had tried more and they did worse.
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host: the economic argument at the time was that growth would be inhibited by a hate .-ellipsis student ratio. guest: i give it a term paper as an exercise in my class for students to write an essay what was wrong with that paper. there are so many things that was wrong with it it has now been totally discredited. there is no evidence that there is any break at 90%, in fact as i mentioned before we had 130% debt to gdp ratio and that was followed by a fastest. of economic growth. it depends on how you respond.
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if you respond to the debt by austerity then you're going to have a lot of problem as we have seen. if you respond by saying let's invest in our people, infrastructure, technology, then you can have a rapid period of economic growth. that was a bipartisan consensus, eisenhower eisenhower did this. the education problem, all of these things. all it in networked. it it's not it's republican versus democrat it's a proven recipe that served america in the. when we had the highest debt to gdp ratio. host: you had a section about policy and where we should go. for those folks who are maybe not going to read the book, and more more importantly though that should be no one. for this moment where we are in
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america, we'll have a hotly contested republican primary, these questions about inequality are thankfully on the agenda. it's one of the great things. so this is the moment the presidential debate is when you're supposed to stay this is where i want to take the country. if you are running for the nomination in any party, what would be your agenda? what would you run on? guest: look when i going to reverse inequality that was in the making for one third of the century. were not going to reverse it overnight. but we can begin but if we don't begin now were going to take an even worse he qualities in our economy. i would focus on three or four things.
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first, i would say let's begin by rewriting the rules. our institutions, the way our expenditures tax, to make our economy more week equal. let's try to make our dissolution of income working better for americans,. host: on the job, get paid more. guest: making minimum wage is as low as it is almost a half-century ago. were supposed to be the radius country, and those at the bottom haven't seen a pay raise raise and close to half a century. i think that's amazing. that's one part. a second part that is related to that, let's be sure we don't make things worse. let's do no harm. our trade agreement the
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president has proposed, those will make things worse. basically transferring more power to corporations making it more difficult to protect the environment, more difficult to print text worker safety, even regulations that make our economy work well, make drug put prices higher, lower standard of living because they'll make it more difficult call for generics be brought into the market. it would exposes more to on fair competition. so let's not make things worse. i'm very strongly against that kind of act. third thing, education.
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we need to make access to education fair. we have to create fairness. things have gotten worse. for thing is we can't ignore the role of art tax system. at the very, very least we should have a fair tax system. the percentage of the income of the very, very rich that they pay in taxes is lower than those who work for a living. is there more land because we capped it at a lower rate? this is is not anything about incentives, it's about creating inequality.
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those are many of the things. there is a final piece that i would say, were not going to correct the inequality overnight, i think it's very important to try to do what we can to make what was a middle-class lifestyle robust. one piece is middle-class lifestyle is sending your kids to college. so making college education affordable for everybody, that's an important piece. home ownership. we saw the way our private mortgage system engaged in predatory lending. the way it didn't provide products that would enable
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ordinary people to have homeownership. there's a way to solve that problem that ought to be part of the agenda. make a warning home ownership appropriate, if you have a small income you have a small home. host: because it's still the biggest engine of wealth for the middle class. guest: one of the things that most americans want to work. we make it work difficult. host: how so? spee2 first first of all we don't create enough jobs.
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>> they didn't put enough effort into making it work, that money didn't make sure our financial system was really operating in a competitive way. host: i'd like for you to stand for one minute because wasn't a good idea for us to use our monetary policy to stimulate the economy. one of the things people miss is the fact that it we are going to do it through the bay and expect that to create jobs and expect it create new credit for homeowners and small businesses we have to fix that pipeline. that can't be the route to if there's cracks in the pipeline.
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guest: it had little effect but not much in an effect because the credit channel was broken. the pipe had leaks all over the place, it wasn't working. so instead they created a stock market bubble, again creating inequality. it wasn't the intent of the feds to create inequality but it has given a huge gift to the people at the top 1%. they have recovered, they have recovered, they have done very well. host: most people forget that less than half of americans3 inequality. it wasn't the intent of the feds to create inequality but it has given a huge gift to the people at the top 1%. they have recovered, they have recovered, they have done very well. host: most people forget that less than half of americans have no stock at all. guest: the majority of the capital gain go to the top 1%. so that's an example of if we could fix our mortgage market it would make a big difference for ordinary americans.
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look at making it possible for people to work, more jobs is an important part but we've been successful. if you get rid of the barriers you will see who is doing better at school. so the feds want to prosper they need to bring into women into the labor force. america is much more difficult than other advance countries, we don't have family leave, we we don't have childcare, these are elementary things that don't cost that much and yield returns much larger than the cost. finally, we need public transit.
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huge number of studies have looked at the fact that here other jobs, here are where the poor people lived and there's nothing connecting them. and it's making it difficult for four people people or even ordinary people i don't want to say poor, its average americans, the car breaks down you can't get to work, you, you get fired, and that the downward cycle. other countries have done stuff in public transit. and and it would also be great for environment. host: it would be great for enviroto woent and the kind of investment that would yield more and economic growth as a multipart then investing in roads. guest: and and help out in the short run with job creation. host: so you have an essay in the great divide about the role of mass incarceration and the role of our criminal justice
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system, not just as a human rights issue but as an economics issue. we talk a little bit about that and where we need to go and what would your engender in 2016 inclare guest: one of the problems in the united states is it's the only country engaged in mass incarceration. we have 5% of the world's population andce those are in prison. we make it very difficult for all of those people have been put in prison to get back into the labor force. for a large fraction of african-oolerican young man, instead of going to college they spend those years in training and that's not training them to be productive members of our labor force. host: particular lee when you don't have those
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